If the inflation rate falls from 4% in 2005 to 2% in 2006, then:
A) disinflation has occurred.
B) deflation has occurred.
C) the average price level has declined.
D) the value of money has increased.

Question

Quizplus · Accepted Answer

Disinflation has occurred because although the inflation rate has decreased, it is still positive (above 0%). Deflation would occur if the inflation rate were negative, and the average price level would decline as a result. The value of money may have increased slightly, but this is not the primary effect of disinflation.

If the Inflation Rate Falls from 4% in 2005 to 2